Paladin Realty Partners LLC

As a private real estate investment firm that targets the Class B and Class C niches, Paladin Realty Partners LLC has a built-in strategy for standing above the crowd in the value-add market.

Whitney Ann Greaves

Los Angeles—With the plethora of players looking for “value added” multifamily opportunities nowadays, how does a company distinguish itself? As a private real estate investment firm that targets the Class B and Class C niches, Paladin Realty Partners LLC may have a built-in strategy for standing above the crowd in these markets.

“We do not encounter a great deal of competition for investing in Class B and C properties because we look for deals that are a little bigger than local syndications would pay for, but too small for the big funds to purchase,” says Whitney Ann Greaves, managing director at Paladin Realty.

The firm, which sponsors real estate investment funds on behalf of institutional investors and high net worth individuals, is currently invested in about 3,200 multifamily units with its joint venture partners throughout the United States, says Greaves. Paladin Realty seeks opportunities in $10 million to $20 million multifamily transactions, with $3 million to $10 million in total equity investments.

The firm’s properties are concentrated in the middle of the country—prime secondary and tertiary markets territory. Markets include, for example, Kansas City, Cincinnati, Indianapolis and Houston, as well as Florida, Baton Rouge, Atlanta and Philadelphia. “The key to being in secondary and tertiary markets is knowing them well,” says Greaves. “Some markets are good, while others do not have sufficient demand drivers to make them worthwhile.”

Paladin Realty was founded in 1995 in partnership with former U.S. Treasury Secretary, William E. Simon. The firm’s strategy to invest in Class B and Class C properties is a long-standing one, says Greaves. (It is also an active private equity investor in housing in Latin America.) In some ways, the “B” and “C” properties may be even more insulated from adversity than the Class A trophy asssets. The Class B and C markets are composed of “renters by need rather than by choice,” Greaves points out. “We provide a more affordable product to a broader segment of the population.”

Paladin Realty engages with local joint venture partners to source transactions and operate its multifamily assets. Purchasing the properties is a “property-by-property decision,” she says. And the company, which seeks total returns that are at least in the mid-teens, if not more,  and hold periods of five to seven years, is willing to enter even weaker tertiary markets if the property has a sound business plan, Greaves suggests.

Nevertheless, location remains a foremost consideration, says Greaves. “You cannot do enough cosmetically if the project is not in a good location.” Paladin Realty performs a load of due diligence to make sure the demand drivers—population and job growth‑are persent in any new markets it enters.

State capitals, such as Baton Rouge, La., and Topeka, Kansas, tend to be attractive and stable plays today because they have a steady source of government employment, and often educational and medical industries as well, Greaves points out.

The firm is finding opportunities in the B and C space today not only in properties in foreclosure or receiverships, but also distressed partnerships, notes Greaves. Recent acquisitions by Paladin Realty this year include a 352 property in Baton Rouge, La., purchased for $38.2 million. The existing ownership would be restructured and recapitalized with new financing and additional equity, and unit upgrades will continue to improve rents. Another transaction was the $14.82 million purchase of a 260-unit property in Houston. The property was in receivership. The business plans calls for curing deferred maintenance issues, improving the common area amenities and upgrading the units to improve net operating income.

As these transactions demonstrate, the attractions of the Class B and Class C assets include not only avoiding the overpriced Class A sector, but also not having to “rely on market improvements to drive appreciation,” says Greaves.